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Home Equity Use and the Life Cycle Hypothesis
Author(s) -
CHEN ALEXANDER,
JENSEN HELEN H.
Publication year - 1985
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.1985.tb00343.x
Subject(s) - life cycle hypothesis , home equity , consumption (sociology) , equity (law) , economics , market liquidity , business , demographic economics , public economics , labour economics , finance , social science , sociology , political science , law , macroeconomics
The life cycle hypothesis of consumption assumes the household to take a life‐time perspective on all resources available for consumption, and to use the assets accumulated during the life‐time to fund later consumption. Typically, households in the middle, high earning years, are able to save; younger and older households borrow or dissave. For many, a large share of accumulated household assets reside in home equity. This paper analyzes the propensity to use home equity to fund current consumption using a logit analysis of homeowners. The results support earlier criticism of the life cycle hypothesis in finding that older households do not rely on dissaving from assets. Older homeowners are less likely to use home equity to fund current consumption than others. Both sociodemographic determinants of life cycle changes as well as income variables are significant determinants of willingness to use home equity. Liquidity considerations appear to be less important.